Will EU Money Be the Tune for New Members' Catch-Up Song?

The new member states should not expect EU money to lead to miracles. The most important ingredients of catch-up growth are a stable macroeconomic framework; supply-side policies that help markets to adjust quickly; and a well-trained, flexible workforce. EU aid will only make a positive contribution to growth in the region if it is firmly integrated into such an environment. According to Eurostat figures, average per capita GDP in the 10 east European candidate countries now stands at around 40% of the EU average. The gap between the average EU income level and that of the candidate countries has widened considerably since 1989. The EUu0092s real GDP grew by 30% between 1989 and 2002, whereas for the 10 East European accession countries the increase amounted to only 8% during the same period. Available evidence suggests quite strongly that the accession countries have followed the pattern of the Mediterranean countries, in that recent economic growth has gone hand in hand with a marked widening of regional income differentials. The fastest growth has occurred in the regions centred on capital cities and in those geographically close to the EU. Smaller towns, rural areas, and the eastern parts of the accession countries have generally lagged behind, with poverty, high unemployment, and a lack of competitive industries characterising the regions along the EUu0092s future eastern border with Belarus, Russia, and Ukraine. If current trends continue, regional differences in the East European countries will continue to widen. There is therefore a prima facie case for the EU to concentrate its regional development efforts on the poorer, eastern regions of the new member states. Under current EU rules, regions with a per capita GDP of less than 75% of the EU average automatically qualify for EU regional aid under the so-called Objective 1 facility. This means that almost the entire area of all the east European countries will be eligible for EU aid. If the EU maintained the current extent of redistribution (net paymen